Break­ing down the bud­get

The Sunday Mail (Zimbabwe) - - BUSINESS NEWS - Dr Gift Mugano

THE Min­is­ter of Fi­nance and Eco­nomic Devel­op­ment Pro­fes­sor Mthuli Ncube on Novem­ber 22, 2018 pre­sented the 2019 Na­tional Bud­get state­ment whose pri­mary ob­jec­tive is to stabilise the econ­omy by tar­get­ing the “twin deficits” of fis­cal and cur­rent ac­count, which have be­come ma­jor sources of over­all eco­nomic vul­ner­a­bil­i­ties, in­clud­ing in­fla­tion, sharp rise in in­debt­ed­ness, ac­cu­mu­la­tion of ar­rears and for­eign currency short­ages.

From a di­ag­nos­tic point of view, the min­is­ter got our prob­lems right and his pre­scrip­tions, which are out­lined here, were well thought.

Deal­ing with fis­cal in­dis­ci­pline

Prof Ncube pro­posed a num­ber of mea­sures aimed at con­tain­ing bud­get ex­pen­di­ture and rev­enue gen­er­a­tion.

With re­spect to con­tain­ment of ex­pen­di­ture, the min­is­ter pro­posed salary cut for se­nior civil ser­vants by 5%, ex­clud­ing hous­ing and trans­port al­lowances on civil ser­vants bonus, ra­tio­nal­i­sa­tion of for­eign ser­vice mis­sions and the re­tire­ment of 2917 youth of­fi­cers. These mea­sures are ex­pected to col­lec­tively cre­ate an­nual sav­ings of $92 mil­lion.

In the same vein, the min­is­ter pro­posed to un­der­take bio­met­ric regis­tra­tion of civil ser­vants where ver­i­fi­ca­tion of their ed­u­ca­tional qual­i­fi­ca­tions will be un­der­taken with a view of flush­ing out ghost work­ers. This is a game changer which is ex­pected to gen­er­ate more rev­enue sav­ings.

In ad­di­tion, the min­is­ter noted with con­cerns that the 2018 bud­get deficit of $2,292 bil­lion arose from line min­istries’ un­bud­geted ex­pen­di­tures. In ad­dress­ing this menace, the min­is­ter is propos­ing to re­view penal­ties un­der the Pub­lic Fi­nance Man­age­ment Act, which will see of­fice bear­ers abus­ing fi­nan­cial re­sources be­ing fined or im­pris­oned or both. This is a game changer again. Clearly, our big­gest prob­lem in this coun­try is lack of dis­ci­pline. How on earth can line min­istries over­spend by $2,292 bil­lion with­out any de­ter­ring pun­ish­ment? The re­view of the penal­ties and hope­fully their en­force­ment will help to en­force bud­get dis­ci­pline.

With re­spect to rev­enue en­hance­ment mea­sures, the min­is­ter re­in­forced the 2% tax on in­ter­me­di­ated money trans­fers. This is painful but very nec­es­sary. At this junc­ture, af­ter the min­is­ter has an­nounced ro­bust mea­sures to rein in ex­pen­di­tures, it be­comes eco­nom­i­cally jus­ti­fied for us to play our role as cit­i­zens to con­trib­ute painfully to the ad­vance­ment of our beloved coun­try by pay the 2% tax! In ad­di­tion, the min­is­ter raised duty on fuel by 7 cents for diesel and paraf­fin and 6, 5 cents for petrol. This means that prices will go up. This means that life will con­tinue to be dif­fi­cult for us but then again, we must en­dure this pain if we are to take this coun­try for­ward.

In the same vein, in or­der to raise ‘do­mes­tic lines of cred­its’ of for­eign currency with a view of al­lo­cat­ing it to the pro­duc­tive sec­tors, the min­is­ter pro­posed to charge duty and taxes on mo­tor ve­hi­cles, se­lected man­u­fac­tured prod­ucts and agri­cul­tural pro­duce. He also pro­posed that taxes will be paid in the currency of trade. This means that if you are charg­ing your goods and ser­vices in US dol­lars, you will pay tax in US dol­lars.

What is not clear with this pro­posal is whether this only ap­plies to busi­ness which by na­ture of their busi­ness charges in USD, for ex­am­ple, the tourism sec­tor; or if the Min­is­ter is sug­gest­ing that there is no is­sue in the three tier pric­ing sys­tem.

Deal­ing with trade im­bal­ances

Over the years, Zim­babwe ran trade deficits. In the last ten years, the coun­try recorded a $30 bil­lion trade deficit which was largely dom­i­nated by goods which we can be pro­duced lo­cally. These are goods such as ce­re­als, veg­eta­bles, chew­ing gums, di­a­pers, tooth­picks, phar­ma­ceu­ti­cals, tis­sues and plas­tics, etc. In ad­dress­ing this anom­aly, the min­is­ter came up with com­pre­hen­sive mea­sures such as pay­ment of duty in for­eign currency for se­lected agri­cul­tural and man­u­fac­tured goods that are im­ported into the coun­try. There are also duty re­bates on the im­por­ta­tion of raw ma­te­ri­als and equip­ment.

Ex­pected out­comes

These mea­sures, if im­ple­mented, are ex­pected to grad­u­ally re­duce the bud­get deficit to sin­gle digit level, hence, tar­get­ing 5% of GDP for 2019 and 4.1% in 2020, and to 3% in 2021. In the same vein, paras­tatal re­forms, re­bates on raw ma­te­ri­als and equip­ment as well as du­ties on un­nec­es­sary im­ports is ex­pected to in­cen­tivise com­pa­nies to sup­port lo­cal pro­duc­tion, which will re­sult in a re­duc­tion of the trade deficit.

The coun­try will wit­ness the gap be­tween real time gross set­tle­ment (RTGS) and nos­tro bal­ances clos­ing. Peo­ple in the streets will see their sav­ings and RTGS bal­ances re­gain­ing value and fi­nal con­ver­gence of the 1:1 ex­change rate in about three years. This is very pos­si­ble.

Fel­low com­rades, let us en­dure the pain and sup­port the Fi­nance Min­is­ter and the Cen­tral Bank Gover­nor as they co­or­di­nate these poli­cies to take us to Canaan. ◆ Dr Mugano (Ph.D) is an au­thor and ex­pert in trade and in­ter­na­tional fi­nance. He is a Re­search As­so­ci­ate at Nel­son Man­dela Uni­ver­sity, Reg­is­trar at Zim­babwe Ezekiel Guti Uni­ver­sity and Di­rec­tor at Africa Eco­nomic Devel­op­ment Strate­gies. Feed­back: Cell: +263 772 541 209. Email: [email protected]

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